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08/12/2016

Merkel, Tsipras display goodwill, but differences persist

Euro & Finance

Merkel, Tsipras display goodwill, but differences persist

Angela Merkel and Alexis Tsipras

[Bundesregierung]

Prime Minister Alexis Tsipras and Chancellor Angela Merkel put on a public display of mutual goodwill yesterday (23 March), appealing to Greeks and Germans to set aside national stereotypes and work for a better European future.

Yet despite warm words on the new leftist premier’s first official visit to Berlin, it was unclear if they had narrowed differences on economic reforms Greece must implement to win urgently needed fresh cash from its creditors. The two leaders were due to discuss the reforms in greater depth over dinner.

Tsipras insisted he was not in Germany to solve Greece’s pressing liquidity problems, but to find common ground to move forward in the eurozone.

He condemned as an “unjust provocation” a German magazine cover depicting Merkel amid Nazi officers by the Acropolis in Athens. And in a rebuke to his own justice minister, he said no one in Greece was considering seizing or auctioning off German property for war reparations.

“Please, let’s leave these shadows of the past behind us,” Tsipras said, stressing that the European Union was a force for stability in a troubled region. “Today’s democratic Germany has nothing to do with the Germany of the Third Reich that took such a toll of blood.”

Merkel said Germany considered the issue of reparations for the Nazi occupation in World War Two politically and legally resolved, but she was aware of how Greeks had suffered. She hinted that Berlin may increase a fund created last year for youth exchanges, for which parliament has granted €1 million a year for three years.

She also said Germany, which has the biggest population and economy in the EU, considered all European states as equals and wanted good relations with all, including Greece.

The Chancellor made clear there could be no breakthrough to provide fresh funds for Greece from their talks, since that was up to the 19-nation Eurogroup of eurozone finance ministers.

Berlin wanted Greece to restore growth and overcome high unemployment, Merkel said, adding: “For that, you need structural reforms, a solid budget and a functioning administration.”

Proposals by Monday

Tsipras promised eurozone leaders last week he would present a comprehensive list of reform proposals soon to unlock aid, without which EU officials say Greece may run out of money by late April. His pledge has encountered deep scepticism in Germany, a stickler for fiscal discipline.

>> Read: Greece promises to deliver full reform list after three-hour ‘mini summit’

Greece can choose its own reforms to unblock the flow of loans from international creditors and stave off bankruptcy, but it will have a hard time avoiding privatisations and a pension reform because of their budget impact, European officials said.

Tsipras agreed last week that Athens would present within days a list of its own reforms that must achieve similar fiscal results to the measures agreed by the previous conservative-led cabinet.

“The last government did not complete the ‘prior actions’ necessary for the final disbursement. Nothing has changed, the prior actions are the same. But the measures can be changed if they do not jeopardise debt sustainability,” one eurozone official said.

Which reforms to choose is politically sensitive,because Tsipras’ Syriza party won a general election in January on a platform of ending the policies of its predecessors, including budget austerity and measures it regards as recessionary.

If the creditors agree that the substitute plans will achieve an impact equivalent to the previously agreed measures, Greece would get more loans from the eurozone and the International Monetary Fund, averting bankruptcy and a possible euro exit.

The starting point for talks with the IMF, the European Central Bank and the European Commission — “the institutions” — is a long list agreed to by Tsipras’ predecessors.

“They need to persuade the institutions that some of the measures should not be undertaken – to be either dropped, or supplemented by others,” one senior eurozone official said.

Greece will present its proposed package of reforms to its euro zone partners by next Monday in hopes they will release much needed cash, its government spokesman said today (24 March).

“It will be done at the latest by Monday,” government spokesman told Mega TV.

Hard to avoid privatisations

Privatisation is likely to be one of the major hurdles, officials said, because it was due to contribute €4 billion to the budget this year alone. The Tsipras government does not want to sell state assets, although it has agreed in principle not to stop sales that had been initiated already.

A reform of the pension system is another sticking point, where the EU is concerned about early retirement privileges and the need to link benefits to the size of contributions.

Under the agreement with the previous government, Greece was due to pass a law merging supplementary pension funds. However, the new government is strongly resisting that because it would entail a further cut in pensions for many Greeks.

The creditors also want changes in the Value Added Tax system to eliminate a reduced rate charged on Greek islands. They also want to double the VAT for hotels, to 13%. Athens says that would hit tourism, its main revenue stream.

Other key reforms include an effective insolvency law for individuals and companies, collective dismissal laws, ways to quickly settle wage disputes, and energy price liberalisation.

Finally, officials noted that tax collection itself would have to improve for the budget to function.

“I don’t see how Greece’s finances could come to order unless they manage to considerably improve the tax collection systems,” a third official said.

The task is not made any easier by the fact that Greece is running out of money and has little time to pick and choose among the measures, or to prepare new ones from scratch.

“They have a week or two at best,” the senior official said.

Once Athens agrees on the list with its creditors and starts implementing the changes, more loans could start flowing gradually.

“This is where there can be flexibility. They can do it step by step, and get money,” the senior official said. 

Background

On 20 March, the European Commission offered Greece funds to deal with what it called a humanitarian crisis, after Prime Minister Alexis Tsipras vowed to clarify bailout reform pledges demanded by creditors.

Following crisis talks between Tsipras and European leaders, EU Commission chief Jean-Claude Juncker said he was making available 2.0 billion euros in unused EU structural funds to Greece.

Tsipras promised to deliver full reform list after three-hour 'mini summit' at the European Council last week (19-20 March).

>> Read: Greece promises to deliver full reform list after three-hour 'mini summit'

Greece secured a four-month extension of its financial rescue on 24 February, when its eurozone partners approved an economic reform plan that backed down on key measures and promised that spending to alleviate social distress would not derail its budget.

>> Read: Eurozone approves Greek reform plan with reservations

Germany's rejection of an initial Greek request for a six-month loan extension forced Athens into a string of politically sensitive concessions, postponing or backing away from campaign promises to reverse austerity, scrap the bailout and end cooperation with the "troika" of EU, ECB and IMF inspectors.

>> Read: Greece, eurozone agree to four-month loan extension, avert crunch